Through October, District manufacturing contacts reported an across-the-board drop in activity as weak demand, declining business investment, and tightening credit contributed to extremely weak economic conditions. Contacts noted accelerated declines in production and new orders, as well as stalled levels of shipments, compared to a year earlier. Many contacts continued to report cutbacks in employment and/or work hours, confirmed by dwindling manufacturing payrolls. Prices also decelerated further compared to a year earlier, indicating weakening demand in a recessionary environment. The number of export orders received by manufacturers, which were a source of optimism before August, fell drastically in recent months and turned negative. Another important gauge of regional manufacturing, Kennesaw State University's Southeast Purchasing Managers Index (PMI), declined in October to 32.4, down from 41.8 in September and 18.4 points below October 2007 levels. (A PMI over 50 indicates expanding manufacturing activity, below 50, contracting activity).

Transportation and Trade

Trucking and Railway
The American Trucking Association's (ATA) national truck tonnage index for September was down 1.3 percent from August but up slightly from September 2007. Regional industry contacts reported weak freight demand for both trucking and rail companies. The outlook for freight demand is negative because of continued weaknesses in housing, autos, and retail sectors. Through mid-November, freight volumes of regional rail companies continued to be weaker than in 2007. Shipments of automotive and construction materials continued to drop sharply, offsetting gains in shipments of coal, chemicals, and farm products. Intermodal shipments were lower than year-earlier levels.

International Trade
The value of international shipments passing through District ports continued to far exceed 2007 levels. For the 12-month period ending in September, exports rose 28.6 percent, with all District ports posting double-digit gains. For the same period, the value of regional imports rose 19.5 percent. Driven by higher import prices, import values across regional ports were still rising, but import volumes declined from year-earlier levels. Regional-based exports through third quarter 2008 jumped 30 percent from year-earlier levels. Export values from Louisiana and Mississippi posted the largest gains, led by strong demand for agricultural, poultry, and mineral fuels. Regional exports in 2008 were boosted by stronger demand from Canada and Mexico.

Energy Production

Inventories
The Energy Information Administration (EIA) reported a combined 18.6 million barrel (12 percent) increase in Gulf Coast crude inventories since two hurricanes struck the region in the first half of September. Gulf Coast gasoline inventories have declined 4 percent since the end of October as falling pump prices have caused consumers to draw down gasoline reserves. For the country as a whole, gasoline stocks remain below their seasonal average range after the September storms drove inventories down to the lowest level since the beginning of the data series in 1990.

Production and Refining
According to the EIA's short-term outlook, national crude oil production will increase 8 percent in 2009, with two major production platforms in the Gulf of Mexico coming online. The region's crude oil production year-to-date has averaged 169,000 barrels, or 12 percent below the same period last year, mostly because of September's hurricane-related production cutbacks. According to the Baker Hughes Rig Count, roughly 60 rigs operated in the Gulf Coast during November, 12 rigs fewer than in November 2007. Gulf Coast refineries operated at 60 percent of their operable capacity in September, down 30 percent from August.

Automobile Production

Through mid-November, vehicle production in District states continued to weaken. Production volumes fell for the five regional assembly plants in response to the dramatic drop in vehicle sales in September and October. About four-fifths of the vehicles assembled in the region are trucks or SUVs—the vehicle segments most affected by rising fuel prices and shifting consumer demand.

The short-term outlook for regional vehicle production is uncertain given the impact of the financial crisis on vehicle financing and sales. Pressured to reduce excess production capacity, GM closed its Doraville, Ga., facility in September. Other regional plants have recently announced output reductions of slow-selling trucks and SUVs to work off high inventory levels. However, the District's longer-term auto production outlook was brightened by Volkswagen's selection of Chattanooga, Tenn., as the site for its $1 billion auto factory. The factory will assemble 150,000 midsize sedans per year, with production starting in late 2010. VW plans to have a supplier park nearby and announced that 80 percent of the vehicles' parts will be produced in North America. Kia Motors and Toyota will also begin new vehicle assembly production in West Point, Ga., in 2009 and Blue Springs, Miss., in 2010. Toyota recently reported that because of the shift in demand for fuel-efficient cars, its Mississippi plant will assemble the Toyota Prius instead of the initially planned Highlander CUV.